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Appraising NNPC’s Quirky $1.5b Loan

19 Jan 2013

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Recently, Reuters blew the whistle on a surreptitious syndicated $1.5 billion loan obtained by the state-run Nigerian National Petroleum Corporation (NNPC) allegedly to help it pay debts to international fuel traders. FUNSO ADEOLU examines the controversial loan deal, questions raised and mounting public opposition to the move

Why do Saudi Arabia’s Aramco, Brazil’s Petrobras and Malaysia’s Petronas represent world-class oil companies and cutting-edge models of economic drivers of their respective countries while their peer - the Nigerian National Petroleum Corporation (NNPC) - is not? Clearly, NNPC’s strangely opaque management style and extreme lack of transactional transparency has become a firmly entrenched tradition of the nation’s oil giant over the decades. Under this scenario, efforts to maximize returns on the country’s huge investment in the oil and gas sector remain largely a chimera.

The latest move by the NNPC to source a syndicated loan for the stated purpose of paying off debts it owes its international fuel traders like Glencore, Trafigura and Vitol amongst others only serves to further dramatise an unseemly operational trend by the nation’s chief oil sector minder.

According to Reuters, quoting senior banking and oil trading sources, the deal struck at the end of last year is seen as crucial to easing the burden on big commodity traders, who were facing the prospect of painful multi-million dollar write-offs. The loan, according to the report, was provided by many Nigerian and international banks and brokered by Standard Chartered Bank. The debt, it was gathered, will be paid back over five and half years. The NNPC is believed to have put up 15,000 barrels per day of its oil production as collateral.

But NNPC spokesperson, Ms. Tumini Green, said it had not been obtained, although the process was being finalised. According to her, the transaction is still ongoing and the NNPC lawyers and those of the banks are looking at the terms of the deal to ensure that things are properly done.  As at the end of last year, the marketers said the federal government owed them N200 billion in arrears of unpaid subsidy for the fuel they imported.  This is aside the bank interests that have accrued as a result of delayed payment which also runs into billions of naira. Nigeria has over the years been dependent on imported petroleum products for local consumption and requires  over 38 million litres daily for premium motor spirit (PMS) to meet  its growing national demand.

Troubling questions

Many Nigerians are puzzled at NNPC’s mathematical razzmatazz. The corporation brought in products, sold the products and also collected subsidy money from the federal government for selling at regulated price just like other marketers. The question now is what happened to the proceeds from the products sale plus the subsidy the corporation collected? Adding to this mystery is the fact that NNPC has been swapping crude oil in exchange for refined finished petroleum products in. This scenario puts their rationale for sourcing the loan in the first place into a tail-spin. And Nigerians are demanding explanation from NNPC on all these confusing tales being dished out to them. NNPC has to account for the proceeds of the sale of the products it imported and the subsidy differentials it collected from the subsidy scheme. It should also explain the quantity and volume of crude oil it swaps and for what it gets in exchange.

Marketers source bank loans to import the products, a business contract entered into with the NNPC. Because of expected subsidy payments due to them they sell at a discounted rate to end users. In effect, if any key stakeholder in this chain is left holding the short end of the stick, it is then the marketers.

Worse still, the palpable lack of transactional transparency in this latest loan deal has spawned several legitimate posers. Against this background, it is then not surprising that several informed stakeholders have kicked against the syndicated loan deal by NNPC. Former World Bank Vice President Dr. Oby Ezekwesili has joined the condemnation of the corporations planned $1.5b which it claims it intends to use to pay off its debts.

She pilloried the decision in her Twitter account last week. Her angry flak trails that of the Senate, which recently queried the plan, saying it was not informed about it. According to Ezekwesili, the process the NNPC is following to obtain the loan, which she held was unnecessary, lacks transparency.

In his reaction, Lagos-based lawyer Femi Falana (SAN) urged the National Assembly to probe the oil giant. According to NNPC spokesperson Green, the corporation had not obtained the loan yet, although the process was being finalised. NNPC is believed to be owing major commodity trading houses, including Glencore and Mercuria, about $3.5 billion in unpaid fuel supply bills. Another significant dimension to the unfolding drama is that President Goodluck Jonathan is reported to have authorised the loan.

The NNPC spokesperson said: “The loan has not been obtained yet. It is still being worked out. This is a purely business transaction and it is done in good faith. If you owe somebody, you have to look for how to pay. So we are looking for money to pay our debts.” Green said the loan deal was a crucial measure to help the corporation stay in business, insisting that by taking that step, NNPC had not contravened any aspect of the law establishing it as a state-run oil company.

She added: “Why would anybody not want us to pay off our debts, especially when it is done legitimately? I don’t think it is right.”

According to Sections 6 (1)(c) and 8 (1)(2) of the NNPC Act: “The corporation, in fulfillment of its duties, can enter into contracts or partnerships with any company, firm or person, which in the opinion of the corporation will facilitate the discharge of the said duties under this Act.

“Subject to the other provisions of this section, the corporation may from time to time borrow by overdraft or otherwise howsoever such sums as it may require in the exercise of its functions under this Act and the corporation shall not, without the approval of the National Council of Ministers, borrow any sum of money whereby the amount in aggregate outstanding on any loan or loans at any time exceeds such amount as is for the time being specified by the National Council of Ministers.”

Managing director of Financial Derivatives Company (FDC), Mr Bismark Rewane, also justified the NNPC’s borrowing. He said if the NNPC failed to honour its obligations for offshore processing transactions, it would affect the country’s international credit rating. His words: “If the NNPC does not borrow and pay its foreign creditors, our (Nigeria’s) credit rating will go down and this is not good for our financial institutions and the country,” he said.

But the Chairman of Senate Committee on Media and Public Affairs, Senator Enyinnaya Abaribe, said: “Under the law, no government agency can borrow money without the approval of the National Assembly.” Senate Committee chairman on Petroleum (Downstream Sector), Magnus Abe, said there was no record of the deal before the Senate.

Ezekwesili, former Minister of Education and one-time chair of the Nigeria Extractive Industries Transparency Initiative (NEITI), warned that such financial recklessness and lack of transparency in the NNPC should not be allowed to continue. “What?” she exclaimed. “Counter Trade in 2013 to pay commodity traders opaque debt?

“This level of elite parasitism that has been the hallmark of our oil sector is fatal. It’s unsustainable.” Ezekwesili, pioneer head of the Budget Monitoring and Price Intelligence Unit – known as Due Process Unit – further lampooned the Federal Government for allowing what she termed “Federal Republic of NNPC”, wondering: “Why does this administration encourage the idea of a “Federal Republic of NNPC in a Democratic Nigeria in 2013?”

She faulted insinuations that the delay in cleansing the rot in the NNPC and the oil sector was caused by the non-passage of the Petroleum Industry Bill (PIB). “The government can drive a change agenda in the messy sector even without the PIB. It is all about sincere commitment,” she said on Twitter.

Wondering why the unbundling of the NNPC has taken so long, she said plans to unbundle and make the corporation a public company was already in place before President Olusegun Obasanjo handed over power in 2007. “We had left behind building blocks to take NNPC out of opaqueness by subjecting it to market discipline.

“The demand for the cleanup of this decadent oil sector has to be sustained. It is killing the greatness of this nation. This paradox of affluence that has been our lot with oil needs to end soonest. We cannot sustain our nation on ironies. Not only has elite binge on oil corrupted our governance, it has also dulled the brain of our nation to all other prospects for greatness.” The former minister urged Nigerians, particularly the youth, to demand answers and transparency in government. She advised them to speak out to engage the National Assembly and other arms of government.

Falana said: “The decision of the NNPC to take a loan of $1.5 billion is illegal and unconstitutional. The federal government or any of its agencies has no right to take local or foreign loans without the approval of the National Assembly. Section 6 of the NNPC Act which empowers it to borrow money with the approval of the Federal Executive Council has to be read subject to the powers of the National Assembly before taking such loans.

“In the 2013 Appropriation Bill awaiting the assent of President goodluck Jonathan, there is no provision for the loan of $1.5billion. Apart from stopping the loan, the National Assembly should investigate the pit of corruption that the NNPC has been turned into. The NNPC is owing the Federation Account the sum of N450 billion. In the fuel subsidy scam, the NNPC benefitted to the tune of 50 per cent.

Tags: Nigeria, Featured, Politics, Diezani Alison-Madueke, NNPC

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